Cofco Agri plans to increase capacity of its plants in Brazil

Valor International

Cofco Agri, which owns four sugar-and-ethanol plants in São Paulo, has a strong growth plan in the segment in Brazil that aims, in the short term, the expansion of its current capacity in the country. But the company, controlled by state-run food group Cofco, from China, doesn’t rule out the acquisition of mills.

The company aims to increase installed capacity in the country to 18 million tonnes by 2019, a 20% increase compared with its current potential production of 15 million tonnes. In the long term, however, the goal is to “double in size,” Marcelo Andrade, global director for sugar at Cofco Agri, told reporters during the International Sugar Seminar held by consultancy Canaplan in São Paulo.

For Mr. Andrade, a fair price to acquire a plant would be between $50 and $75 per tonne of capacity. He pointed out also that it’s necessary for the mill to have a strong structure in order to be attractive for buyers, like having power-cogeneration capacity and its own sugarcane plantation. "There’s no use of having a plant and not having sugarcane," he added.

In the current Brazilian harvest (2016/17), which began in April, Cofco has already made some adjustments in its units that allowed it to increase the share of cane juice for sugar production, which stood at 65%, and focus only on production of VHP sugar. "We’ve focused on what we’re good at, and removed the complexity," he said.

As a result, total sugar production in its four São Paulo plants is estimated at 1.15 million tonnes this season. In the latest harvest, sugar production totaled 800,000 tonnes, partly with crystal sugar.

This increased focus on sugar production started last year, when Cofco decided to expand its planted area with sugarcane and advance pricing of sugar sales. The company estimates it will end the current crop in Brazil in early December grinding between 14.5 million and 14.7 million tonnes of sugarcane, an increase of about 30% compared with the last season’s volume.

For the 2017/18 crop, Cofco estimates it will process 14 million tonnes of sugarcane, including a mix with even more sugar than in the current season. Mr. Andrade said Cofco has already set the price of a higher share of its production than the average of other Brazilian plants, which is currently at 30%, according to the latest survey of Archer Consulting.

The growth horizon of the Chinese state company for sugar production in Brazil is in line with its global strategy. This year alone, Cofco has acquired in China two sugarcane-processing plants and two sugar refineries. For industry players, Cofco is one of the few companies with real growth potential in the sugar-and-ethanol industry in Brazil, because it’s present both in production and trading, with global sales of 4 million tonnes of sugar per year.

Cofco’s bet contrasts with the prospect that the world's largest sugar importer, China, may reduce its purchases during the 2016/17 international season, which started in October, amid the reduction in its domestic sugar deficit and sales of inventories by the government.

According to Cofco — that despite being state-controlled denies knowledge of government policies for the industry — 520,000 tonnes of sugar from strategic reserves have already been auctioned, of which 350,000 tonnes came from the central-government reserves and 170,000 tonnes from reserves of Guanxi, China’s largest sugar producer.

Of that total, 370,000 tonnes were bought at a price considered high, near 7,000 renminbi per tonne, said Mauricio Sacramento, Cofco’s sugar trading director in Brazil. "This may encourage more stocks to be released," added Mr. Sacramento, who avoided giving a projection of how much sugar would still be offered.

The market consensus is that China has about 7 million tonnes of sugar in its reserves, but there are doubts about the product’s quality. "The stock has been there for a long time, it might be yellowish. And some sugar is from Cuba, which also has lower quality,” said Paulo Roberto Souza, president of trading company Copersucar. He estimates that China should release between 1 million and 1.2 million tonnes of sugar from its strategic reserves in 2017.